Boohoo reveals long-term plan as Sports Direct goes ‘boohoo’ over House of Fraser

Boohoo, the online fashion retailer is expanding with recent purchases, Sports Direct has been on the acquisition trail too, but this time there has been tears.

Article updated: 22 August 2019 10:00am Author: Michael Baxter

Sports Direct

Let me confess to bias. I have had a downer on Sports Direct ever since my wife fell victim to its returns policy, in this case we were told that a non-working zip in an item of clothing was part of the design.

We didn’t shed tears over the saga, rather we were incandescent with rage, but maybe I felt a degree of schadenfreude over recent problems at the company.

Sports Direct — market cap £1.2 billion — forked out £90 million for House of Fraser, with the Sports Direct boss Mike Ashley talking about turning the more upmarket retailer into the Harrods of the High Street. Well, now Ashley admits he regrets buying the store, which contributed a £54.6 million loss to the Ashley empire, recently.

Then there is Jack Wills, in the process of being bought by Sports Direct for £12.75 million.

I don’t get it. I just don’t see what fashion retailer Jack Wills, up market ish department store retailer House of Fraser and the core brand Sports Direct — which sells things cheap, but in volume — have in common.

I sometimes buy trainers in Sports Direct, when I buy a suit, it’s often in House of Fraser, but what’s the synergy — are they hoping, every time I buy trainers to up-sell me into buying a suit?

Add to all this, the recent delay in publishing results, and the resignation of auditor Grant Thornton, and the problems the company is having in finding a replacement auditor, then it is tempting to say shareholders need to accept the inevitable and blubber all the way to the bank as they count up the losses.

The only positive I can think of is that things seem so prima facia bad, that maybe the downside is priced in and Mike Ashley has a cunning plan.

I just don’t see it.

Boohoo

But while there is a good reason to cry over Sports Direct, the only way I would well up over Boohoo is with pride over how well the shares have done.

The share price is up five-fold over the last five years.

Now the online fashion retailer which targets 16-30 year olds is expanding. It’s buying Karen Millen and Coast.

The synergy is clear — it sees Karen Millen as the means to hang on to customers as they get a bit older, maybe grow out of the core Boohoo brands such as Nasty Gal. I read that the Karen Millen products are a natural fit with Boohoo — figure hugging dresses, for example. I don’t know so much about the dresses, but I can see how Karen Millen is a potential tight fit with Boohoo.

There is another point — Karen Millen listed its threats as changing fashion trends and the risk of building an inventory it might struggle to shift.

Boohoo has a superb supply chain — it’s strong in the area where Karen Millen seems to be weak.

The purchase of Karen Millen is also about data. As an online retailer, Boohoo is good at using data pertaining to its customers to sell other goods. The synergy between the two and the way data can be used more effectively by the purchase provided a very strong reason not to go all ‘boohoo’ over Boohoo.

Oh yes, Karen Millen adds a nice international dimension too.

The only reason I can think of to not be positive is that the benefits are so obvious, the upside may be priced in.

But if you believe in long-term investing and selecting good companies with good long-term prospects I know which one of the two retailers I would choose.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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